Thread: Federal Reserve to Send $79 BILLION Profit to US Treasury

March 22, 2011, 11:13 AM ET.

Fed to Send $79 Billion to Treasury

By Luca Di Leo

The Federal Reserve‘s net income surged 53% to $81.74 billion last year from 2009 mainly due to higher earnings from securities the central bank bought to counter the financial crisis, according to final audited results released Tuesday.

Bloomberg News
The Federal Reserve building in WashingtonAlmost all of that income — $79.27 billion — will be sent back to the U.S. Treasury. The record transfer marks a 68% increase from the $47.43 billion the Fed sent back to Treasury in 2009. The figures were slightly higher than preliminary results published in January.

To fight the financial crisis, the Fed bought securities whose value had collapsed due to fear and uncertainty in markets and set up emergency lending programs for banks and firms, thus boosting its balance sheet. The central bank came under attack for taking too many risk with taxpayers money and putting itself in a position to suffer losses.

However, so far the Fed’s crisis-lending programs have brought profits. The 2010 income rise was mainly a result of $24 billion in interest earnings from the $1.0 trillion mortgage-backed securities and agency bonds it bought to help stabilize the housing market. As of last week, the Fed held a similar amount of such securities. (See a chart of the Fed’s balance sheet)

The U.S. Treasury on Monday said it would gradually sell off its $142 billion portfolio of mortgage-backed securities. While there’s no direct implication for Fed policy, the market reaction to the Treasury sale will provide valuable input into how the central bank may go about selling its own much larger holdings, which analyst expect to happen early next year.

The Fed said its total assets stood at $2.428 trillion at the end of 2010, with holdings of U.S. Treasurys rising $261 billion to $1.067 trillion. The size of the balance sheet has since risen further as the central bank continues to buy government bonds in a program that’s meant to help the economy by keeping borrowing rates low. The $600 billion bond-buying effort is due to end in June.

The latest data shows the Fed had assets worth $2.587 trillion as of March 16, with the biggest share coming from U.S. Treasurys at $1.275 trillion.

The Fed could still lose money on its holdings. For example, if inflation rises to the point where the central bank needs to increase interest rates, its own cost of funding would rise and it could be forced to sell long-term government bonds at a loss. If that were to happen, the Fed’s remittances to the government would drop, or possibly halt for some time.

http://blogs.wsj.com/economics/2011/03/ ... -treasury/

Federal Reserve Returns $79 Billion In Profits To Federal Government

Written on Tue, 03/22/2011 - 12:45pm
By SmarTrend Staff

The Federal Reserve profited $81.7 billion in 2010, a record high, up from $53.4 billion in 2009.

The bank returned $79 billion to the U.S. Treasury, a 68% increase over 2009. The bank uses some of its profits to cover expenses before returning the rest to the federal government, as the Federal Reserve is entirely self-funded.

The increase in profit was primarily attributable to an increase of $24 billion in interest earnings from mortgage backed security (MBS) holdings.
The central bank's assets grew to $2.43 billion as of December 31, 2010, up 2.2% from 2009.

Changes in the bank's balance sheet included an increase of $261 billion in US Treasury holdings, and an increase of $86 billion in MBS holdings.

Those increases were offset by a decrease in loans to depository institutions of $96 billion, and a $23 billion decrease in loans extended under the Term Asset-Backed Securities Loan Facility, mostly due to early repayments by borrowers.

http://www.mysmartrend.com/news-briefs/ ... government